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Site Selection

Selecting the right site for a leisure, entertainment or recreation project is critical to its success. A poor site lasts forever; will permanently handicap the project's revenues and profits; or worse, can result in its failure. Sometimes moving a project as little as one-half mile can have a dramatic impact on its business. The old adage "location, location, location" is just as true for leisure projects as for retail and restaurants.

There are a large number of factors that are important considerations to site selection. Some are:

 

All these characteristics have an impact on whether a site is acceptable for the type of project being considered, how large the geographic market area will be for the project, the market penetration rate, the per capita sales and as a result, how much business the project will do.

Another important consideration is price. The conventional wisdom is that the lower the price, the more profitable the project will be. This wisdom is correct, but only if all other features of different sites are the same. However, that is rarely the case. What is important is not the absolute price, but the relationship between price and the volume of business.

Often the more expensive site will create the more profitable project, as the project will do more business and/or its development cost will be less. Let's take a look at an example that illustrates these points. We'll use a recent example from our work with a client.

We were retained by a client to evaluate four potential sites for an entertainment project in a suburban area of a major metropolitan area in the Midwest. The sites ranged in price from $3 per square foot to $5 per square foot. We had determined that the project would require approximately 5 acres, so we were looking at sites ranging in cost from $650,000 to $1,100,000, or a difference of $450,000. That's a serious difference. Three sites were within several miles of each other in one town and the fourth, the lowest priced, was about six miles away in another town.

The first thing we did was evaluate the potential market draw of the sites using a combination of computer modeling of probable market areas combined with our knowledge of how market areas are defined by consumers. The lowest priced site, the one farthest away from the other three, had a market area about 20% lower in population than the three in the other town. Furthermore, its location indicated it would have a lower market penetration rate. Translation - the cheapest site would end up being the most expensive in terms of its carrying cost as a percentage of revenue, i.e., that site would have the lowest return on investment.

The three sites in the other town were all well located, at least in terms of proximity to interstate interchanges and other retail. The lowest priced of the three was eliminated since it was hidden from the traffic of major roads. The problem with it was 'out of sight, out of mind', meaning it would have a low awareness factor. Its other problems were an access problem and being surrounded by businesses with mediocre images.

That left two sites. The less expensive of the two was near some major retailers, whereas the most expensive was very near the retail mall that served the entire region and also across the street from the well know convention center. Location wise, the more expensive site would probably do more business. The more expensive site also had two more things going for it. It was in an office/retail development where all the infrastructure improvements were completed, including utilities and storm water management. The other site would have required infrastructure improvements adding to its ultimate cost.

So in the end, the most expensive site won out. We then proceeded with a formal market study to evaluate its market. Computer modeling is fine for crude evaluations, but not for final decisions. Our market study data confirmed our preliminary evaluations and the client optioned the site.

You may still be wondering. How can the site that cost $450,000 more be the better site? The answer is multifold. First, the project's return on investment will be higher. It will cost the same to construct the building and purchase all the furniture, fixtures and equipment at it as the other three sites, so the difference in the land cost equated to a maximum of a 10% increase in overall project cost. However, in our market and attendance evaluations, it will produce sales at least 20% greater. If you work the numbers, you quickly see how the return on investment will be much greater at that site. Also, the probability of success is greater. It never makes sense to start a new business with any handicaps. That is exactly what a less than ideal site brings to a project.

The White Hutchinson Leisure & Learning Group has extensive experience in assisting clients with evaluating and selecting appropriate sites for their projects. Often clients retain us for a one-day consultation to help them select a site before proceeding with market and economic feasibility studies. If potential sites are located in different areas, we can also develop preliminary market area demographics for each site (in the US) to assist in the evaluation. The cost is $100 to $200 per site in addition to the cost of the one-day consultation.

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